Monthly Archives: March 2016

The full extent of the impact of ECB President Draghi’s post meeting speech has been revealed by the price action of the markets. If there is one lesson to be learnt for future central bankers, it is this… don’t perform an action and hint immediately that it will be the last time that you do so. That’s like not performing the action in the first place! If I seem clear as mud, let me elaborate. The ECB cut rates further into negative territory last week, but in the post monetary policy meeting announcement, Mr Draghi hinted that the ECB was unlikely to make further cuts. In an instant, what should have been remembered as a dovish policy meeting took on a hawkish tone. EUR/USD is still trading above pre-meeting levels, surely this must be counter to the aims of the ECB. I can imagine some northern Eurozone board members frowning at the quantitative easing, shaking their heads at the negative rates, but a lower euro? There would only have been smirks there surely? Not now!

One thing is certainly different in this post-meeting world, and that’s the equity markets. They are unquestionably higher and look to have taken out key technical levels. Further highs look inevitable and possibly a re-test of 2015 levels. The bottom line is that we are back in a risk positive, or if you like.. ‘risk on’ environment. What we don’t yet know is whether the markets can tolerate another slump in oil prices. While technicians I respect are bullish commodities, I remain sceptical of the ability of oil to sustain the current rally. Should the black gold turn again, can the broader market ignore it? Presumably one of the concerns in the recent bout of market turbulence has been fears of some systemic risks brought on by failing loans in the Shale industry in the United States.

If the dollar rally is to continue, this is roughly where I would expect the turn to begin. I remain more comfortable regarding the bearish case for GBP/USD than EUR/USD from looking at the charts. Thematically the case for a continuation in the rally of emerging market currencies looks strong, and I suspect that this will be linked to the sustainability of the equity market rally. Of course there will country specific narratives that might negate the general positive tone. In the case of the naira, the Nigerian currency appears to have stabilised, although as I warned at the start of the year, at a level comfortably above 300. This appears to be the new normal now.

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Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416. It is for informational purposes and is not an official confirmation of terms. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

He didn’t cry wolf this time he acted, but by the end of ECB President Draghi’s press conference the euro was flying. The ECB announced a larger than anticipated plan to expand quantitative easing, incentivised banks to increase lending (good luck with that one) and pushed rates further into negative territory. Given that one of his objectives was surely to weaken the currency this wasn’t much of a success. I’ll come back to that later, but it’s fairly obvious when he lost control of weakening the euro (my assumption of his strategy was that a weaker euro was one of the aims). This was when he indicated that the central bank was uncomfortable with going deeper into negative rate territory, for fear of damaging banks. By the way you don’t hear him worrying about damaging an increasing number of pensioners who rely on fixed income! As soon as he made this comment effectively casting doubt on further rate cuts, the euro – which had dropped on the announcement of more QE and rate cuts – reversed sharply. Check out the chart of EUR/USD below, the vertical line is the time of the announcement of the cut and more QE. No prizes for guessing when he cast doubts on further moves deeper into negative territory! The bottom line is that the market now believes that currency depreciation is no longer considered a viable strategy by the ECB. Not surprisingly a large proportion of the short EUR/USD bets in the market place were reduced. Does this mean that all of a sudden we should be bullish on the euro? Absolutely not. The conditions are perfect to borrow in euros (if rates are negative you should actually get paid for your troubles, at least in theory) in other words sell euros, and invest in higher yielding assets. It might take a while for this dynamic to gain traction as there are many countervailing forces out there, not least short term trading noise.

Despite the less than stellar performance of the euro, equities are perhaps reacting a little bit more positively to the ECB’s actions. That’s not to say that there wasn’t an adverse reaction to Draghi’s revelation about discomfort with deeper moves into negative rate territory. Certainly after the initial rally, equities also fell and made new lows for the day, but today they are up again. The reality of more quantitative easing will be good for equities, as will the fact that alternatives to further rate cuts are likely to be directly beneficial to risky assets. So this seems like a logical reaction. It is hard to say if this is what Draghi intended, but personally I would err on the side of giving him the benefit of the doubt. After all, this is the man who early in his term, came out strongly and said that the central bank would do “whatever it takes” to save the single currency. The fact that he was so bold and blunt, ensured he didn’t really have to do much more. For someone astute enough to understand market perceptions at that time, it’s hard to believe he wouldn’t appreciate the consequences of casting doubt on deeper moves into negative rate territory now. I’ll have to sit down for a while and figure out what game he might be playing, I can only admit that it isn’t totally clear to me at the moment.

In other news, I note with interest quite a noticeable drop in initial jobless claims in the US. It’s only one month’s data, further data points are needed before we can make something of it. If it’s the start of a new acceleration of jobs growth in the United States, we might have further reason to remain longer term bearish EUR/USD.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Finally some good economic data! Manufacturing rebounded in the UK from recent lacklustre results. Data published yesterday showed year on year to the end of January manufacturing declined 0.1% versus a 1.7% decline to the end of December, economists had forecast -0.7%. To be honest it’s good news but not stunning. No doubt the weaker sterling has added a bit of competitive vigour to UK manufacturers, this is likely to be a benefit to the UK economy for some time to come. I’m certain Governor Carney is counting on that!

There’s an interesting article in the Financial Times about record Chinese investment in Europe. When you consider over the last half decade that China has made a big push investing in Africa, it is easy to conclude that China is trying to take over the world. I believe Chinese overseas investment is actually a symptom of the weakness at home and uncertainty about policies and the renminbi going forward. This is not overseas investment so much as capital flight and it reminds me of the late 80s when Japanese corporations made huge flashy investments in the United States, buying historic buildings and marque companies. Remember what happened after? A malaise that the Japanese economy has never quite been able to shake off. Always watch what the natives do, they usually have a deeper understanding of the risks in their own country (China) than the rest of us do. The Chinese are fleeing with their cash.

Today is a big day in the Eurozone – scratch that – it’s just a big day. The ECB announce its monetary policy decision and afterwards we get the usual ECB President’s press conference. We’ve been here before. In December, Mr Draghi disappointed markets by falling some way short of expectations with regards to the stimulus to be applied to the Eurozone economy and EUR/USD rallied sharply. Today is a chance for him to correct that. Otherwise he is in danger of becoming the boy who cried ‘Wolf!’ Quite apart from the Eurozone being one of the largest economic regions in the world, in a way Mario Draghi is making a representation on behalf of all central bankers. The markets are increasingly fearful that central banks are becoming less effective at adding stimulus into the global economy. We have already crossed the zero bound in a number of major economies, not least the Eurozone and Japan, and we are still getting uninspiring outcomes. I mention this, because the market’s reaction could be thematic as a consequence of these fears. In any case, President Draghi has made a series of pronouncements over the last few months which indicates that he stands ready to do more to aid the Eurozone economy. Now he has to show us what that means. You’ll know very quickly what the market thinks. If he’s successful the euro will weaken significantly and stocks will probably rally. If he disappoints we could see the reverse, particularly with regards to the euro.

Finally, if we weren’t already expecting it, the data published by the Nigerian Bureau of Statistics indicates that the Nigerian economy has slowed. Quite a bit actually…. In Q4 2014, the Nigerian economy grew almost 6%. This time around the (Q4 2015) the number is just a smidge more than 2%, and this is in comparison to Q3 2015 when growth was closer to 3%. We don’t know where the trough is. We don’t know if we are past the worst. But in the absence of sensible economic policies it’s easy to be pessimistic. The naira has stabilised in recent days, but it’s hard to imagine any justification for naira appreciation right now. Particularly with news about damaged pipelines…

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

In the wake of China’s shockingly poor export numbers published yesterday, the IMF has warned that the world faces an increasing “risk of economic derailment”. They are pushing for immediate action to boost demand. Since you and I – the consumer – will not jump up and rush to the shopping malls on their say so, they are clearly looking for governments of the larger economies to do something…. Or perhaps I should say.. do something more. In any case it’s a sure bet that they’ll be lowering their growth forecast for 2016. The IMF was followed up by the OECD which observed that growth is slowing in the US, Canada, Germany, Japan and the UK. However as I mentioned yesterday, there are eminent economists now stepping forward to argue that all of this pessimism is a bit overdone. I would summarise all of this by concluding that there is a big debate amongst economists and institutions about the state of the global economy. Not particularly unusual amongst the practitioners of such an inexact science. There is no doubt that the world is having to adapt to a scenario where the Chinese economy has become a major exporter of negative news. But I still maintain that growth remains solid if not spectacular in parts of the advanced economies.

In all of this, it might have been easy to miss the speech made by Fischer, second in command at the Federal Reserve, on Monday. He suggested that we may just be starting to see the first signs of an increase in the inflationary impact of a tighter labour market. I’m not exactly sure where he is seeing the evidence, but if he is correct then it is probably encouraging for those within the policymaking board who would like to raise interest rates a few times this year. It is however extremely unlikely that anything will be done at the March 15 – 16 FOMC meeting. If you weren’t aware of it, that’s the focus of the markets at the moment. Most expect the Federal Reserve to present a more dovish outlook for the US economy next week, so it is unlikely that we’ll see much in the way of a dollar rally until after the meeting at least.

As I suggested even before the presidential elections in Nigeria last year, the new administration, presided over by a northerner would likely see increasing successes against the Boko Haram insurgency in the north, but more failures against those who would disrupt the pipelines in the Delta region. So I read with not very much surprise, an article in the Financial Times remarking at renewed waves of violence in the Delta region – if it’s not clear to you, the Delta region is in the south of Nigeria. It is unclear how much of Nigeria’s oil production is at risk, but the simple conclusion is that this will not be beneficial to the Nigerian economy in anyway shape or form. This stuff couldn’t be happening at a worse time!

My general view at the moment is a stabilising market after the turbulence at the start of the year. We will need to get past next week’s meeting at the FOMC before a tone can be set for risk sentiment in general and currency markets in particular. I continue to see the dominant trends as being a bias towards a stronger dollar and recovering emerging market currencies.

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Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416. It is for informational purposes and is not an official confirmation of terms. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

If you needed any confirmation that things have been tough for the global economy in recent quarters, look no further than the horrific trade data published in China overnight. Chinese exports fell over a quarter from a year earlier, the worst such performance since the dark days of early 2009. Now undoubtedly there are seasonal effects because at this time of the year we have to be even more cautious about Chinese data due to the data disruption of the lunar new year. But we must acknowledge that the trend is extremely concerning, and in a way it’s less about what the impact is on China, and more about what it implies is happening to the rest of the world economy. Interestingly the rate of decline of imports into China slowed. Not exactly a sign of robust health, but at least the domestic economy is showing some stabilisation/resilience. One thing’s for sure, things don’t look rosy for the Chinese currency.

It seems that economists are starting to come around to my way of thinking. Increasingly experts like the former chief economist of the IMF, Olivier Blanchard, are saying that current fears about the global economy are not in line with the facts on the ground. An argument I have persisted with for some months. Yes, global growth has been unspectacular, but this isn’t the global financial crisis. The largest economy in the world, the US economy has been solid, and the UK isn’t doing too badly either. Several emerging market economies are already at what one could describe as their troughs. If anything the possibilities for a better tomorrow exist in many places. Granted China, Japan and the Eurozone are areas of concern, but even in Europe it’s hard to see a return to the crisis period of a few years ago, and all these economies are likely to act in a way that boosts activity. And hovering in the background is the silver lining of lower energy costs which should increase consumer disposable incomes in the coming months. This doesn’t mean that things are going to be wonderful, but there is no reason to my mind that things should get much worse from here. At least I haven’t seen the evidence yet. Should that happen, I reserve the right to change my tune!

Looking at currency markets, it seems to me we have entered a period of corrective/ counter-trend markets which give the illusion of stability. In my view the dominant trend remains a stronger dollar, and new lows are likely for both EUR/USD and GBP/USD. Whether that paradigm remains into the end of the year however is an entirely different matter. For now, my thinking is that after this correction we will re-test dollar highs before a bigger correction in the dollar reveals itself. I will of course continue to monitor the underlying technicals of the market and should the view change we will update you.

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Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416. It is for informational purposes and is not an official confirmation of terms. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

NFP came out better than expected on Friday printing +242K (expected +- 195K). However while the payroll number was exciting the wage growth was disappointing and printed -0.10% – which will not be something the FED will be happy to read. Given the data from Friday I still think we will see 2 rate hikes this year (June and December, rather than 4 that was thought back in December). The USD remains stuck in the range and somewhat supported by the news on Friday. This week sees the ECB meeting on Thursday (+ conference) and I have no doubt there will be some interesting rhetoric from the ECB that moves the currencies. There has been talk that the ECB could lower their depo rate another 0.10% and extend QE. You would think this would be negative EUR – then again the market has a mind of its own and the sheep will follow the masses. We are not quite ready for EURUSD at PARITY….but it is coming that is for sure.

What is a worry is North Korea’s threat to bomb the US and S.Korea should the military exercises take place today. Not that I think they will make good on their promise the threat is nevertheless a threat and not something anyone wants to read. Why can’t we all just get along?

Interesting article is the NY Times today: “As Economy Slows, Experts Call on China to Drop Growth Target”. They write, “Every March China releases a closely watched growth target for the year, a number that looms large for the world’s economists, executives and policy makers. But a growing number of those experts are now calling for China to stop setting that goal, saying the target actually harms the economy and encourages officials to falsify data. On Saturday, at the start of the National People’s Congress, the government announced a target for 2016 that acknowledges a worsening slowdown. It is a range, 6.5 percent to 7 percent economic growth over last year, rather than a number, suggesting that leaders are rethinking their adherence to hard-and-fast goals. Still, even the broader target is unlikely to reduce skepticism of official Chinese figures. The government’s reading on the growth rate last year was 6.9 percent. The new target range means that leaders expect China’s growth could dip this year, which would further depress the global economic outlook”. Given what I have written previously, this article reinforces my thoughts that the CNY WILL DEVALUE further over the coming months which should help the economy and help lift the Chinese economy (hopefully) back above the magic 7% GDP number.

Negative interest rates risk backfiring the longer and more deeply central banks in Europe and Japan venture into this unconventional monetary policy, economists from BIS have quoted. The BIS also warned that the world’s credit boom is beginning to show dangerous signs of unravelling, ushering in a period of fresh turmoil for the over-indebted global economy. With financial markets thrown into fresh paroxysms in 2016, oscillating between extremes of “hope and fear”, the over-leveraged world was finally approaching a day of reckoning, said Claudio Borio, the bank’s chief economist. “We may not be seeing isolated bolts from the blue, but the signs of a gathering storm that has been building for a long time”, he said. With every passing day, more and more pessimistic news is coming out and I worry that the global economies are starting to show signs of weakness. Thankfully we have not entered a period of deflation again and while inflation remains pretty much 0.00% in the major economies the timing of any interest rate hikes will be put on the burner for now. Given the slowdown in China and a herky-jerky stock market, Wall Street has been betting that the FED will put off any interest rate increase at its next meeting later this month. William C. Dudley, president of the Federal Reserve Bank of New York, cautioned this week, saying: “I have marked down my growth outlook very modestly.”

The GBP has maintained its rally from 1.38 handle and opens around 1.4150 in Europe. It is the start of the week and I think the GBP will start to give up these gains and move lower again over the course of the week. The EU referendum will play havoc with the GBP over the coming months and therefore you really should become accustomed to a weak GBP.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

Some big data yesterday, ahead of even bigger data to come today. Starting with yesterday, Eurozone retail sales showed positive but unspectacular growth which was much better than forecast. But of more concern was the PMI data which also came out, and that showed that Eurozone activity was at a 13 month low. Looking deeper we observe that while there were decelerations in Germany, Italy, Spain and Ireland, France looks to have slipped back into contraction. It is obvious that Draghi and his colleagues at the Eurozone central bank will be tempted to implement additional stimulus in the coming ECB meetings. The pound continued, what I still consider to be a counter-trend rally, and most of the GBP/USD bounce came after the poor services PMI data which came out yesterday morning. When poor data has a counter-intuitive impact on prices it tells you that the market has no more capacity to sell in the short term and positioning needs to be flushed out. I’m willing to re-assess how far GBP/USD might go in this counter-trend move, but I’m sticking with my conviction that things remain dire for sterling. In Brazil the data was even worse, with the economy suffering its worst performance in 25 years, lower commodity prices, falling investment and an inability to free the fiscal tap have wreaked havoc and resulted in a GDP decline of 3.8% in 2015. Finally, in the United States, we got some productivity and Unit Labor Cost data and composite PMIs, but nothing particularly noteworthy really, with stable PMI’s falling labour costs, and productivity declining but not as badly as forecast. Not surprisingly consumer confidence has taken a bit of a hit since the start of the year as all the market turbulence is wont to do. All in all, there wasn’t anything particularly encouraging about yesterday’s data, but I still hold out hope that lower energy costs will work some magic going into the middle of the year. Frankly the negative narrative coming out of the primaries in the US is a bit of a dampener for anyone searching for a feel good factor. One can only hope that once the candidates are selected a more positive tone might be attempted, but I suspect that hope would be forlorn.

The equity markets have continued to grind higher, and losses from the start of the year are probably halved right about now, but there is still some way to go before investors start feeling more cheerful. There’s a wall of negativity that the market is still yet to overcome, but I continue to think that risks are for higher prices later on in the year.

We expect currency markets to be tentative in front of the big data later on today. We see the risk being better than expected labour market data, and that could have implications for the dollar over the next few months. We still see the possibility of a final low in EUR/USD and a continuation of the GBP/USD bear trend as interest rate expectations and relative growth come to the fore as the main drivers of asset prices.

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Any financial promotion contained herein has been issued and approved by ParityFX Plc (“ParityFX”); a firm authorised and regulated by the Financial Conduct Authority (“FCA”) as a Payment Services Institution with registration number 606416. It is for informational purposes and is not an official confirmation of terms. It is not guaranteed as to accuracy, nor is it a complete statement of the financial products or markets referred to.

Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

There’s no hiding from it, the data from China continues to disappoint. Whether the rest of the world will adjust quickly enough to this new reality, and indeed what exactly the new reality is, is open to question. My suspicion is that the Chinese authorities will attempt additional stimulus to stave off disaster. One things for sure, if the data is coming out this weak it’s probably much worse in reality. We will need to watch out for instability in China if this continues, the Middle Kingdom has a history of vast social unrest if the population feels let down by the State. Perhaps the artificial island in the South China Sea is a symptom of the difficulties facing the Chinese government. If things are bad at home governments though out human history have employed the age old strategy to deflect by stoking up nationalist passions.

On the flip side, the data out of Australia was really encouraging. Exports rose more than expected and the services data was a positive surprise. For the last decade, Australia has looked more and more like a dependent of the Chinese economy so it’s particularly surprising that this should be happening despite the difficulties facing the Chinese economy. If that’s not enough, the commodity complex really does look like its basing. I’m still a sceptic on this issue though. When I look at the longer term chart of the oil price, I still believe a final low is a possibility. Only if I see Brent drive through the $42.50 level in this current bounce will I start to re-assess my view of one final low. Time will tell.

Tomorrow is non-farm payrolls day. Ahead of that we’ll get some more ISM and productivity data out of the United States and also GDP numbers from Brazil. I mention Brazil because it is another top 10 sized economy which has not done well during China’s period of slowdown. I’m less optimistic about better than expected data in this case, but if there is something it would definitely be noteworthy.

The pound sterling has been in recovery mode for the last few days. I don’t believe it’s sustainable. Merely the natural trend countertrend dynamic that is typical in markets. As I never tire of saying, markets don’t go in straight lines. We continue to believe that the prospects for the British pound are fairly dire. I don’t believe it’s going to be easy for the Bank of England to support a rate hiking cycle. The UK’s largest export market (the Eurozone) is not demonstrating robust economic health, and if that wasn’t enough the EU referendum hangs over the economy and the pound sterling like a bad smell at the moment. Even if that wasn’t the case, the legacy of the global financial crisis has left the UK in a precarious long term position. There are now huge amounts of gilts held by foreign investors, and anything which causes gilt yields to rise dramatically could cause a currency crisis. This is my opinion, and it is for this reason that I suspect the Bank of England will take some convincing to get hawkish.

As I mentioned earlier on in the weak, a really strong number tomorrow, which hints at tightening labour market conditions in the United States will cause a disruptive reassessment of US monetary policy. That’s the risk to look out for.

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

The two contestants who will fight for the US presidential campaign became just a bit more certain after yesterday’s ‘Super-Tuesday’ round of primary elections. Both frontrunners moved further in front of their rivals, and at least in Hillary Clinton’s case it becomes increasingly difficult to know if there is any point in her challenger Bernie Sanders continuing the fight, particularly as the demographics of his constituency are probably the exact opposite of what it takes to win in an actual election. But, as they say, part of the process is forcing the opposition to debate the issues that you deem important. Maybe for that reason it behoves us to sit back and enjoy the show. Amongst the GOP, it’s becoming tougher to see how even Rubio, as the 3rd contender can improve his standing, but at least, given the fractured nature of the voting he still has some hopes, however remote. That Ted Cruz with his brand of conservatism might end up being the last best hope of the anti-Trump establishment, makes you want to laugh but also shake your head in wonder. Some great editorials around for those who are interested in all of this. This might seem very far away from currency markets but I would argue the opposite. Yes, there are limitations to the power of the executive in the US political system, but foreign policy is not one of those areas. In a world where currencies have become not just an economic tool for governments, but a political one as well, the next leader of the free world is important to identify. It would be unfair to start speculating about what specific collateral impacts a future Clinton, or Trump presidency could have, but we should all keep a wary eye on what goes on across the pond.

In that spirit, I’ll start off the data watch by reporting on some better than expected ISM numbers last night, from the United States. So far this year the general macro tone has been about a weakening growth trend, whether in China, Japan or in parts of Europe (notably the UK’s poor manufacturing PMI yesterday). So it is particularly interesting that the US economy continues to show solid if not spectacular numbers. One might consider this an aperitif before we dine on the main course which is of course the US labour market data published on Friday. Last time around the non-farm payrolls number was on the disappointing side, at least on a relative basis, but if the tone set by the manufacturing data is anything to go by, a positive surprise could really set the cat amongst the pigeons. The problem is that since the beginning of the year, during the market volatility, the market started to price a decreased probability of further rate hikes in the United States. So much so, that a clear distinction between Federal Reserve thinking and the markets was apparent. It is entirely possible that the market might be forced to move closer to the Fed’s position, and this could result in a dollar rally. In my view, there is still a case for a weakening of the euro and the Japanese yen versus the US dollar purely based on interest rate differentials and likely monetary policy moves. The case for sterling weakness seems quite clear as well albeit for different reasons. With the spectre of Brexit, there are too many uncertainties to permit substantial accumulation of the pound sterling. But it is also worth pointing out that the UK economy is not looking quite as robust as that of the United States.

A technical analyst I have a great deal of respect for, is becoming increasingly positive about commodities, and particularly oil, and therefore he is also getting more bullish about emerging markets. I’m not sure I’m quite there yet, but it is worth noting

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Opinions expressed are subject to change without notice and may differ or be contrary to the opinions or recommendations of ParityFX. Unless stated specifically otherwise, this is not a recommendation, offer or solicitation to buy or sell and any prices or quotations contained herein are indicative only. To the extent permitted by law, ParityFX does not accept any liability arising from the use of this communication.

A quieter start to the trading day in Europe with the GBP trading just north of 1.39 handle. No this is not a recovery, rather a small pull back most probably on the back of profit taking.

All eyes on the NFP number this Friday with analysts expecting circa +190K (up from +151K in February). If this number (or close to it) does print, this will make the FED “happier” in that the February number was merely a blip and nothing to worry about. Still we are way off the +290K printed in January, then again that number reflected the increased hiring in December for the holidays. So one should expect the USD to range trade to higher (as we have seen over the past few days) as the currency dips below 1.09 (vs the EUR). If you look at the table you can see just how tight the range was in Asia which tells you how quiet markets were due to a lack of information and event risk today. I expect that to change over the coming hours as Europe begins trading. Already the EURUSD is starting to show signs of heading south as the currency tests the overnight lows.

Interesting news that the Austrians who took out CHF denominated loans (like 50-60% of Hungarians) and thus faced higher repayments after the SNB withdrew the EURCHF peg, are suing the SNB for compensation. A local court in Vienna awarded an Austrian borrower €13k after the investor sustained losses as a result of the de-pegging. The SNB has appealed and the case has now moved to the regional court for review. No doubt if that fails (the SNB’s appeal) they will appeal to a higher court and so on. In terms of the losses in a class action suit, the numbers will be easily visible given the loans and mortgage numbers are known and thus losses can easily be interpreted. Should this go the distance and the SNB lose, expect a pretty tidy sum the SNB will have to pay out and so expect some “move” in EURCHF.

The ZAR has mounted somewhat of a recovery having traded above 16 yesterday. The ZAR is currently trading circa 15.65 to the USD. I do not expect this rally to last long given the impending move in the EUR(USD). Should the USD indeed break higher (sub 1.08) the ZAR will have to react and be sold off. What is also helping the ZAR to some extent is the investors climbing on the carry trade. Be fearful of that trade given what happened the last time. However for now the trend is your friend and investors are sticking to the trade.

Have a good day ahead

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